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The criminal ties of Trump’s partners in Brazil in the run up to the Olympics

Two early investors of the Trump Hotel Rio in Brazil were facing criminal charges when they went into business with the real estate magnate. Now, Trump’s name is all over documents in two federal probes.
26 Feb 2018 – 12:48 PM EST

Trump Hotel Rio

The criminal ties of Trump’s partners in Brazil in the run-up to the Olympics

By Manuela Andreoni

The Trump Hotel Rio de Janeiro, in Brazil, got its start in 2012 with an unlikely trio. First, there was the man with the idea: Paulo Figueiredo, a former city hall official best known as the grandson of a former Brazilian dictator.

Then came Ricardo Rodrigues, a venture capitalist who had been twice convicted for unfair practices by the local Securities and Exchange Commission, and who was facing fraud charges in federal court at the time; he was later acquitted.

Rodrigues brought along Arthur Soares, a Miami-based businessman who was also facing criminal charges for larceny and for setting up a scheme to get exclusive access to public contracts.

The three formed the company LSH, and the Trump Hotel was its first and only venture.

By the end of 2017, contracts benefiting the Trump Hotel in Rio had been called into question by two different federal probes. Last October, Soares was charged with corruption, collusion and money laundering in connection with the latest probe. Prosecutors wrote in the charges that LSH – and consequently the former Trump Hotel – was part of one of his many scams. A federal judge agreed to hear the case.

Prosecutors drew a diagram to show how they thought LSH was positioned in Soares' illegal scams with Brazilian officials. Public Prosecutor's Office of Brazil

The Trump Organization broke off its relationship with LSH soon after the first investigation was announced in October 2016. There is no evidence that anyone in the Trump Organization is being investigated, and the company did not respond to interview requests. But an analysis of public records about the people and institutions involved in the Trump Hotel Rio project raises questions about what kind of due diligence the Trumps performed, and whether they chose to ignore their Brazilian partners' criminal ties.

After Trump’s election as president of the United States in 2016, the need for due diligence is arguably greater than when he was an ordinary citizen. During the last year there has been intense public debate over potential conflict of interest between the Trump brand and his public office.

Univision and Columbia Journalism Investigations spoke by phone with Trump-lawyer, Alan Garten, in January seeking comment for this report. Upon his request, detailed questions were submitted by email. By the time of publication Garten had not responded, despite a number of follow up phone calls and emails.

Univision asked Alexandra Wrage, the president of Trace, an organization that promotes ethical corporate behavior around the world, what she would have recommended to a company that was considering going into business with two people who had been charged with crimes. "I don't know companies that would bring me that question," she said, laughing. "When you're betting the company's reputation, it would be an extraordinary thing to do."

The U.S. Foreign Corrupt Practices Act essentially forbids American businesses from profiting off bribes paid to foreign officials. But if prosecutors found that the hotel profited from corruption during the time the Trump Organization was involved, it is unclear if the Trumps would be liable. There is no known case against a licensor for crimes committed by a licensee.

"What sort of due diligence are partners doing on the Trump Organization?" Wrage asked. "You can't really have a brand that screams luxury when it invokes in people's minds those shady criminal characters."

Warning signs

At first, the Trump Hotel Rio seemed like a great idea. The Olympics were just around the corner, and the developers benefitted from a special concession that allowed them to build extra floors in a luxurious low-rise area by Barra da Tijuca beach. Figueiredo was responsible for securing the Trump brand, and the hotel project was announced in 2014.

“This is an exciting time to develop our first project in South America,” Donald Trump Jr. said in a press release at the time. “And the perfect location to do so.”

But then Donald Trump, the global real estate magnate, became a presidential candidate, and his businesses became the target of intense scrutiny. And in Brazil, a country with a long history of impunity, authorities were finally reckoning with a series of domestic corruption allegations, opening a wide-ranging investigation that has resulted in the convictions of over 100 politicians and businessmen.

Soares was only charged last October, almost a year after the Trump Organization ended its involvement with the hotel. But some of the people and companies that emerged in the case against him were already well-known to Brazil's court system.

An Interpol alert about Arthur Soares was published after a judge ordered his preventive detention so he wouldn't try to evade justice. Public Prosecutor's Office of Brazil

In 2010, he was charged with manipulating bids to obtain public contracts from Rio's Department of Motor Vehicles. His companies, which also come up in the 2017 investigation, already had around $400 million in revenue from the department. The case was widely publicized, and he became known as “King Arthur” – a nickname competitors gave him after the government's preference for his companies became clear.

A judge sent the case back to prosecutors for further investigation. New charges haven't yet been presented, but the investigation is still ongoing.

In 2012, Soares was charged again, with larceny, which led to a conviction in 2014, seven months after the partnership between LSH and Trump was announced. He appealed his four-year prison sentence, and prosecutors are waiting for a judge to schedule a trial.

It's necessary to verify if the favouring of LSH ... and of the Trump Organization business group by pension funds happened through illicit commissions and bribes

Rodrigues, the other early investor, also had legal troubles, though he wasn't directly implicated in either of the federal investigations that targeted LSH. He had faced six accusations and two convictions by the local SEC before the hotel was announced by the Trump Organization in 2014. One case led to a fraud charge in criminal court, for which he was later acquitted.

His case also generated headlines in Brazil, as it was the first time the SEC punished investors for harming a public servant pension fund in operations in the futures market. In fact, all the accusations against Rodrigues mentioned damages caused to those types of funds. He is now fighting an SEC penalty in court. Contacted by Univision, Rodrigues declined to comment on the record.

12 months and 2 investigations

The first probe to target LSH started in 2016, looking into the financing of the deal by public servants’ pension funds from governments across Brazil. Back in 2013, Figueiredo, Rodrigues and Soares decided to set up an investment fund to finance their venture – the FIP LSH – which turned into LSH's sole shareholder. A government-owned bank called Banco de Brasília was chosen to administer it and look for investors. The majority of the fund's investors, 10 out of 17, were public servant pension funds, though according to LSH, they don't have a majority of the shares.

In October 2016, a prosecutor opened an inquiry to investigate whether any bribes were paid to officials to secure financing for the former Trump Hotel Rio. Public Prosecutor's Office of Brazil

The investigation hasn't made any conclusions public so far and there is no evidence any of the funds suffered financial harm. Prosecutors, however, questioned the appraised value of the hotel and how it was presented to investors. When he opened the investigation, prosecutor Anselmo Lopes raised suspicions about the fact that the hotel wasn't completely ready for the Olympics as promised to investors, and he questioned how no explanation was presented to the regulatory bodies.

"It's necessary to verify if the favouring of LSH ... and of the Trump Organization business group by pension funds happened through illicit commissions and bribes," Lopes wrote in a document announcing the start of the investigation.

Only one year later, Soares was charged for paying millions in bribes to officials to obtain hundreds of millions in public contracts. A judge has agreed to hear the case.

A part of the case presented to the judge explains how Brazilian prosecutors, in collaboration with French investigators, also found evidence they say shows Soares paid a $2 million bribe to an International Olympics Committee official. The payment was allegedly made in exchange for a vote for Rio de Janeiro's bid to host the 2016 event, back in 2009.

In the charges, prosecutors argued that LSH was part of Soares' scam to get illegal advantages, since the local Olympics Committee spent around $1.2 million to book rooms in the former Trump Hotel Rio for the event. The contract was signed a month after the Trump Organization announced its involvement in the project. Two people who worked for the hotel and didn't want to be named considered the accusation ridiculous, since several hotels in the city had contracts with the Olympic Committee.

Prosecutors raised questions about $1.2 million the Olympics committee spent in bookings in the former Trump Hotel Rio. Public Prosecutor's Office of Brazil

But the hotel was only partially ready for the Olympics, and LSH couldn't honor all of its bookings. As a consequence, LSH had to give part of the committee's money back. But the committee knocked $200,000 off the final bill. The discount was given in late December 2016, after the Trump Organization was no longer involved.

Corporate records for LSH have one explanation for delays. In April 2016, their lawyer filed a complaint in a Rio court against Paulo Figueiredo, the third initial investor, saying that he signed an agreement in which LSH guaranteed around $1 million in bank credit notes to companies owned by his family, for their "exclusive and personal benefit."

After the notes weren't paid, the bank blocked the amount in LSH's accounts. The case was settled, but the hotel's plans were delayed by eight weeks. Despite the lawsuit LSH said, "there is nothing to discredit [Figueiredo's] conduct as a company executive."

Last September, prosecutors moved to block all of LSH's assets, arguing that Soares had "administration power" over the company. In response to questions from Univision, a press officer for LSH said that "it's not true that Arthur Soares is the owner of the hotel."

Prosecutors presented an email from Soares in which he seems to give an order to a hotel employee not to answer questions from the press. "Our hired press office is the one supposed to handle this subject!!" he wrote. A friend of Soares's who didn't want to be named said he was just trying to be helpful.

Trying to stop the freeze on its assets, LSH's defense said Soares owns only 14% of the shares of the LSH fund. Soares is represented by a different lawyer, who didn't comment on the order. But the judge agreed with prosecutors, and blocked most of the company's assets, though LSH says it's operating normally.

These findings are part of a series by Univision and Columbia Journalism Investigations that looks at the Trump Organization’s licensing business. This investigation revealed that 15 of the 27 international projects include an investor or a developer that has faced criminal allegations.

Today, Soares lives in Miami and the U.S. government denied an extradition request by the Brazilian government in September on the basis that he faced no charges. A new request was sent in November, with the charges against him included. It is unclear if there has been any response.

The relationship sours

After the Olympics, it became clear the Trump Organization was unhappy with the Rio hotel – but not because of any legal troubles facing the people behind LSH.

A view of the hotel while it still had the Trump name. Dado Galdieri/Bloomberg via Getty Images

In September 2016, representatives from the Trump Organization went to LSH's shareholders meeting in Rio in an attempt to convince them to give up on the Trump brand and use Scion instead. Scion is a new brand the Trump Organization began marketing in 2016 – it has hotels planned in Dallas and Cleveland, but none have opened yet.

Eric Danziger, a director at the Trump Organization, argued to Brazilian investors that the hotel wasn't luxurious enough for the Trump brand, and that if they took Scion, the Trumps would throw in some free advertising and management.

Two months later, shareholders got notice that Trump had pulled out of the deal – and not silently. The Trumps were charging $32.7 million for the break and threatening to go to arbitration court over it. An agreement was reached before that happened. It is unclear how much the Trump Organization was paid.

Since then, LSH has received several branding proposals, according to documents filed by the fund. Amidst the crisis, guests reviewing the hotel on TripAdvisor seem happy with LSH's services. The website even gave the hotel a certificate of excellence last year.

LSH executives who asked not to be named expressed frustration with the negative attention they were getting because of Trump's involvement and the federal investigations. "If you take out the shittiness of us having associated ourselves to Trump, we delivered a functioning hotel," one former executive said. "Even with all the confusion and the lies, [the hotel] is being considered by three international hotel chains."

A special report by Univision News & Columbia Journalism School
All Credits

Spanish Editors: Ronny Rojas, Giannina Segnini, Alejandro Fernández S. and José F. López

English Editors: David Adams, Jessica Weiss and David Boddiger

Investigation and reporting: Inti Pacheco, Manuela Andreoni, Alex Mierjeski, Keenan Chen, Gerardo Reyes, Juan Cooper and Margarita Rabin

Web development and design: Juan Jesús Gómez

Animation: Mauricio Rodríguez-Pons

Social Media: Angélica Rodríguez

Contributors: Columbia Journalism School’s 2017 Using Data to Investigate Across Borders class, Jeremy Blackman, Ritu Sarin (The Indian Express) and The Toronto Star